Made in China, Not Sold in America

Chinese car companies have been big on promises but lacking in results when it comes to cracking the lucrative U.S. market. For years now, Chinese automakers have made splashy headlines at major auto shows around the world, promising that sales were imminent and that the competition should be very worried. In 2005, during the annual Detroit Auto Show, China's Chery Automobiles said the company, with the help of its U.S. importer Venture Vehicles, would soon establish hundreds of dealerships and sell upwards of 250,000 vehicles annually...all by 2007.

BMW X5 & Shuanghuan CEO

Legal problems over design infringement have also not helped. At the , Shuanghuan Automobile and the company's European importer, China Automobile Deutschland, exhibited two SUVs that (externally) were near-clones of the and . It was only at the last minute that China Automobile Deutschland chose not to exhibit a two-door city-car that was an even more blatant rip-off, this time of the Smart ForTwo.

As troubling as legal fights might be, for some Chinese auto companies a courtroom battle has been the least of their worries.

Crash-Test Headaches

Until now, no Chinese automaker has made a serious attempt at entering the U.S. market. Emissions regulations and strict safety standards make doing so a multi-million dollar endeavor, with no guarantee of success. However, a couple of Chinese auto companies have made tentative stabs at the European car market, though in each instance the plans hit a wall (literally) after disastrous crash-test results.

From the outside the Chinese-built Brilliance BS6 looks like a typical mid-size sedan, with conservative looks and the promise of high value. I drove one on the German autobahn, and soon realized the car had a long way to go before its fit and finish was anywhere near the standards of other automakers. The car was a symphony of squeaks, rattles and bizarre vibrations – not to mention an overpowering smell of glue and plastic.

Brilliance BS6 Crash Test

But the real downfall for Brilliance's export plans came when the German automobile club ADAC crash-tested a BS6. The car folded like an accordion, earning it the lowest possible score in front and side impact testing. Sales crumbled as quickly as consumer confidence in the fledgling brand. The same fate awaited Jiangling Motors Corporation and the company's Landwind sport-utility (a re-badged version of the Isuzu Rodeo SUV sold from 1998-2004 in the U.S.). Not only did the outdated SUV flunk European safety tests in 2005, Jiangling pulled off the same feat five years later, when the company's mid-size CV9 minivan received 2 stars out of a possible 5 in recent Euro NCAP (New Car Assessment Program) safety tests.

In its official press release, Euro NCAP called the CV9 "poorly equipped" due its lack of side protection airbags, head protection devices and electronic stability control. Once again, Jiangling has been forced into damage control after another round of disastrous safety tests. However, these poor results aren't a surprise to some automotive industry experts.

"Chinese manufactures are not strong enough to compete in the mature market like North America and West Europe," says Boni Sa, an analyst and specialist in the Chinese market for IHS Automotive. "On one side, it's very hard for the models from Chinese OEMs to pass the strict emission and safety tests in Europe and North America. On another side, cars from China might be the last choice for the customers in North America and Europe." Landwind and Brilliance marketed their vehicles as cheaper alternatives to mainstream choices. But even an open-minded, bargain-hunting car buyer isn't willing to skimp on safety.

Eroding Price Advantage

Smart ForTwo & Shuanghuan Noble

IHS' Boni Sa also foresees the price advantage afforded by China's cheap labor costs as slipping away. "China's OEMs have grown a lot during the past few years. Chinese cars are becoming more modern, efficient and reliable. But due to globalization and alliances with other automakers, China's cost advantage is becoming weaker. Costs of raw materials and labor are growing fast in China...the appreciation of the renminbi [versus the U.S. dollar] will also weaken the cost advantage of cars made in China."

The demand for better wages and improved factory conditions has already impacted China's automotive workforce. Last summer, workers at a Honda factory went on strike for better pay and working conditions. Nearly 2,000 workers at the company's plant in Foshan, approximately 100 miles northwest of Hong Kong, participated in the labor movement. According to a report published by The New York Times, Honda's "Japanese employees in China are paid about 50 times what local Chinese workers receive."

Booming Sales in China

The global recession affected every country and automaker, though China's car market fared much better than most. While sales in the U.S. are finally beginning to rebound, in China they're already booming. China overtook the U.S. last year to become the world's largest car market, and the country's passenger-car sales are up nearly 35 percent in the first 11 months of 2010. With this kind of demand at home, Chinese automakers don't necessarily have to look to Europe or the U.S. to reap huge profits.

Established automakers can also look to the Chinese market for a boost to their bottom-line, even as sales struggle elsewhere in the world. As one of the leading players in the Chinese market, General Motors has been quick to capitalize on this demand. "For the first 11 months in year 2010, sales by GM and its joint ventures in China were up 32.7 percent to 2,172,395 units," says Wesley Luo, Product Communications for General Motors China. "General Motors is the first global automaker to sell 2 million vehicles in China in a single year. It was only three years ago that GM became the first global automaker to reach the 1 million annual sales mark in China."

The Buick Excelle – a compact sedan and hatchback not sold in the U.S. – was China's best-selling car in 2009. Many credit strength in China as having saved it from extinction during GM's bankruptcy, as the American auto giant shed brands like , and . The Chinese market's appetite for Buick doesn't show any signs of letting up. "Buick achieved a new sales mark for November," says GM's Wesley Luo. "Sales of the Excelle passenger car family rose 38.6 percent year on year."

They're Already Here

Global alliances and mergers mean that, in some ways, Chinese auto companies are already present in the U.S. Last summer, Hangzhou-based Geely Automobile purchased from Ford Motor Company for $1.8 billion. Volvo will maintain its headquarters in Sweden, while Geely plans to boost the Swedish automaker's sales in China by producing vehicles there to meet local demand. Volvos destined for Europe and North America will continue to be built in Sweden.

Could your next Volvo ever have a "Made in China" tag? It's not likely, as shipping and other charges would chip away at the cost advantages that come from building a vehicle in China. Many other automakers with lucrative joint ventures in China are plotting a similar strategy. "We don't have any plans to export Chinese-built vehicles to the US," confirms GM's Wesley Luo. Of course, this doesn't mean Chinese-built vehicles aren't being exported elsewhere. GM China, in a joint venture with Chinese automakers SAIC and Wuling, has sold a mini-commercial-vehicle in more than 40 countries.

Another crop of ambitious upstarts is also on the way. Shenzhen-based automaker BYD (Build Your Dreams) has already released its F3DM plug-in hybrid in China. The company now has ambitions to enter the U.S. market and, in 2008, received an investment of $230 million from Berkshire Hathaway Inc., the holding company of billionaire investor Warren Buffet. The F3DM sedan is currently undergoing road tests by the Los Angeles Housing Authority. BYD says it will bring its electric-powered E6 sedan to the U.S. by 2012 – two years later than originally planned.

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